Three Ways for Companies to Work with Chinese Suppliers on Climate

Thursday May 29, 2014

Climate is a recent supply chain concern for most companies. While cost and quality have always been important, working conditions historically was the primary CSR supply chain focus. That is changing. More recently, growing evidence of people displaced by floods, fires, and storms from unabated greenhouse gas (GHG) emissions has converged with awareness that the greatest emissions for many companies is in their supply chain. In response, more companies are taking action to reduce GHG emissions with their suppliers.

1. Engagement on climate sustainability with suppliers should involve long-term commitment with suppliers.

Many companies, including HP, IKEA, Lenovo, and Walmart, have made multiyear commitments to reduce GHG emissions in their supply chains. In our interviews for this report, one supply chain sustainability manager for a U.S.-based consumer products company told us that companies need to set an emissions goal and then “promote and translate it to suppliers.”

Long-term commitment may involve investing greater resources into supply chain emissions reductions. Companies such as HP, IKEA, and Walmart dedicate staff to provide suppliers with training, assessment, and planning for energy management. One manager whose company offers workshops for factory owners and managers said part of the aim is “to change the mindset that [environment, health, and safety] is something factory managers also need to focus on.”

2. Companies should identify the “most promising” suppliers and highlight the practical opportunities for energy reduction.

Suppliers with potential to reduce GHG emissions, along with the management and organizational systems to support action, usually are more able to implement reduction projects. One global consumer packaged-goods company identifies suppliers by asking them a series of questions: “Do you report to CDP? Do you report and allocate emissions to us? Do you set targets? Are you willing to partner with us?”

While opportunities exist for factories that are new to energy management, some may not understand or believe the potential. “The best wins aren’t always the best to show them right out of the gate,” said one energy service provider who has identified opportunities for factories to save up to 40 percent in energy costs, but begins working with suppliers on smaller projects. Other suppliers and buyers confirmed that starting small builds momentum for improvements that require more support.

3. Companies should consider rewards to motivate supplier investments and performance in reductions.

Companies such as Dell, Electrolux, and IKEA support pilot projects with suppliers to demonstrate the energy savings from emissions-reductions projects. And others—including HP, Lenovo, and Walmart—reward energy and GHG performance in their purchasing decisions through supplier qualifications, reporting requirements, procurement scorecards, or even publicity and recognition during supplier summits. Other companies with local buyer teams help connect their suppliers with regional government incentives such as energy-efficiency training materials, free audits, subsidies, and GHG-trading benefits.

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